Your home equity is a powerful financial tool for renovations, debt consolidation, or major expenses. This guide compares home equity loans and HELOCs to help you choose the right option.
Home Equity Quick Facts 2025
- Home equity loan rates: 7.5% - 10.5% (fixed)
- HELOC rates: 8.0% - 11.0% (variable)
- Maximum LTV: Typically 80-85% of home value
- Credit score needed: 620+ (680+ for best rates)
- Tax deductible: Interest may be deductible if used for home improvements
Home Equity Loan vs HELOC
| Feature | Home Equity Loan | HELOC |
|---|
| Disbursement | Lump sum | Draw as needed |
| Interest Rate | Fixed | Variable (usually) |
| Payment | Same monthly payment | Varies with balance |
| Best For | One-time expense | Ongoing projects |
| Draw Period | N/A | 5-10 years |
| Repayment Term | 5-30 years | 10-20 years after draw |
Best Home Equity Lenders 2025
| Lender | Loan Type | Min Credit | Max LTV | Rating |
|---|
| Figure | HELOC | 640 | 95% | ★★★★★ |
| Bank of America | Both | 660 | 85% | ★★★★★ |
| U.S. Bank | Both | 660 | 80% | ★★★★☆ |
| Discover | Home Equity | 620 | 90% | ★★★★☆ |
| Spring EQ | Both | 640 | 95% | ★★★★☆ |
How Much Can You Borrow?
EQUITY CALCULATOR
Borrowing Capacity Example
- Home value: $400,000
- Mortgage balance: $250,000
- Current equity: $150,000
- Max LTV (80%): $320,000
- Available to borrow: $320,000 - $250,000 = $70,000
Best Uses for Home Equity
Good Uses
- Home renovations: Increase property value (tax-deductible interest)
- Debt consolidation: Lower interest than credit cards
- Major expenses: Medical bills, education
- Emergency fund: HELOC as backup line of credit
Risky Uses
- Vacations or lifestyle: Risking home for temporary enjoyment
- Investments: Stock market volatility vs. home security
- Regular expenses: Living beyond your means
Requirements to Qualify
Typical Requirements
- Credit score: 620 minimum (680+ for best rates)
- Debt-to-income: 43% or less
- Home equity: At least 15-20%
- Stable income: Proof of employment/income
- Home appraisal: Determines current value
Costs and Fees
| Fee Type | Typical Cost | Notes |
|---|
| Appraisal | $300-600 | Required to determine home value |
| Origination | 0-2% of loan | Some lenders waive |
| Title search | $75-200 | Verifies ownership |
| Attorney fees | $500-1,000 | Required in some states |
| Annual fee (HELOC) | $0-75 | Ongoing fee for credit line |
Home Equity vs Cash-Out Refinance
- Cash-out refi: Replaces your entire mortgage with larger loan
- Home equity: Second lien, keeps existing mortgage
- Choose cash-out if: You can get lower rate than current mortgage
- Choose home equity if: Your mortgage rate is already low
Tax Implications
- Interest deduction: Only if used to "buy, build, or substantially improve" home
- Limit: Combined mortgage debt up to $750,000
- Not deductible: Debt consolidation, tuition, vacations
- Consult tax advisor: Rules vary by situation